E&R @Glance May'11

RESEARCH

May 2011 E&r @ GLANCE Economy & Realty Knight Frank

Economic Outlook Economic Zones (SEZs) have been a major During 2010-11, manufactured goods were contributor to this growth with exports from leading in terms of exports followed by The growth of an economy is primarily driven SEZs reaching INR 3,158 bn in 2010-11 as minerals and IT/ITeS. Strong global demand by three major segments namely private against INR 2,207 bn in the previous year for automobiles, textiles and engineering consumption expenditure, government thus recording a growth of 43% in the current goods helped India post 33% growth in consumption expenditure and exports. fiscal. export of manufactured goods. Export of Recession in the global economy during 2008 IT/ITeS services has also witnessed a India's export to all its major trading partners and 2009 led to slowdown in India’s private considerable improvement in 2010-11 as has gone up significantly in 2010-11 with consumption expenditure and exports. demand from developed countries remained exports to China growing at a whopping 77%. Realizing the threat to domestic growth story, robust. Such strong export numbers have led Export to other trading partners such as USA the government of India had stepped in and the Ministry for Commerce and Industry to and Europe have also grown in double digits increased government spending during revise its export target to more than US$500 during 2010-11 showing the strong pace of 2008-09 which eventually helped in bn in the next 3 years. maintaining the GDP growth rate at 6.7% in recovery in foreign trade with these countries. India’s Export Growth by Sector 40 that year. USA, Europe and China together account for 40% of India's total export and the economic 30 Exports took a major hit in 2008 with recovery in these countries has helped India 20 slowdown in global trade due to the in improving its export in 2010-11. t n economic meltdown in the leading countries e

c 10 r

India's export to all e of the world. However, the economic recovery P witnessed by developed countries since early its major trading 0 2010 have helped the global trade market to partners has gone -10 flourish once again with exports from India -20 reaching new highs in 2010-11. The latest up significantly in s s s d d l e d e n a t r I o r a

u / e o t s

forecast by International Monetary Fund (IMF) T n g c 2010-11 with exports I e i r a f M O in April 2011 suggests that the world GDP u n

to China growing a growth will remain in the range of 4.4-4.5% M 2009-10 2010-11 Source: Centre for Monitoring Indian Economy, NASSCOM for the next two years with countries like India at a whopping 77% and China continuing to lead in terms of GDP Strong global India’s Export Growth by Country growth going forward. 80 demand for Real GDP Growth (%) Country 2010 2011 2012 60 automobiles, USA 2.8 2.8 2.9 textiles and 40 t

UK 1.3 1.7 2.3 n e

c engineering goods r e

Euro Area 1.7 1.6 1.8 P 20 helped India post China 10.3 9.6 9.5 World 5 4.4 4.5 0 33% growth in Source: World Economic Outlook, April 2011, IMF export of -20 a a o K A

India has been a major beneficiary of the r e n S U i r u

U manufactured h E A recovery in global trade market with exports C 2009-10 2010-11 goods growing by more than 37% in 2010-11. Special Source: Centre for Monitoring Indian Economy

India Research KnightFrank.co.in This report is published for general information only. Although high standards have been used in the Samantak Das National Head - Research preparation of the information, analysis, views and projections presented in this report, no legal +91 (022) 6745 0101 responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the [email protected] view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research. ma y 2011 E&R @ GLANCE

Along with exports, growth in private As of today there are just 4 malls operational predominantly concentrated around the CBD consumption expenditure also witnessed in the city, which translates to almost and off-CBD locations, future growth is being improvement after 2009-10 and grew at a rate 2 mn.sq.ft. of retail space. However, this witnessed towards the suburban and of more than 7% in the last two years. scenario is expected to change in the next peripheral locations. The locations with a Although the recent hikes in policy rates by few years primarily due to the influx of the high potential of development continue to be Reserve Bank of India (RBI) has raised serious IT/ITES sector, with a majority of the in the south, predominantly towards concerns about the economic growth slowing proposed malls being located in proximity to locations like the OMR, Velachery and GST down, robust export and heavy spending by the IT corridor, known as Old Mahabalipuram Road. government on infrastructure will help India Road (OMR) or Rajiv Gandhi Salai. in sustaining GDP growth above 8% in the Supply and development With the advent of the IT/ITES sector, the coming years. The retail development in Chennai which had often-perceived conservative mindset of the stagnated over the past couple of years is Strong economic growth will positively city is witnessing a remarkable change. The expected to witness steady growth in the impact the demand for office and industrial propensity towards consumption has future. Over the last year only two malls came space in India in the coming quarters. States increased, primarily driven by the increase in up in the city, viz. the 0.8 mn.sq.ft. Express like Maharashtra, Gujarat and Tamil Nadu are the average disposable income of the Avenue, located at Mount Road and the already witnessing increased demand for consumer. This has led to the growth of high- 0.4 mn.sq.ft. Citi Centre mall at R. K. Salai. land from the manufacturing sector. Similarly, end retail units and the overall growth of the This scenario is soon to change with around demand for office space in cities like organised retail sector. The current incidence 22 malls planned to enter the market in the Bengaluru, Pune, National Capital Region of the highstreet format which drives retail in next 2-3 years in various parts of the city. (NCR) and Mumbai is also expected to remain the city is expected to change to a mall- Currently, most of the malls are either under- robust backed by high growth in the IT/ITeS oriented culture in the forthcoming years. construction or in planning stages in the city. sector. Table 1. Retail market classification Approximately 9.4 mn.sq.ft. of new retail Micro-market Location space would be added to the Chennai real Central Business Cathedral Road, RK Chennai Retail Market estate between 2011 and 2013. District Salai, Mount Road, Overview T Nagar, Approximately 9.4 Nungambakkam Chennai is one of the foremost cities of the Suburban Business Nandanam, mn.sq.ft. of new country where the concept of organised District Poonamallee High retail space would retailing was incepted. A pioneer in Road, Egmore, promoting the mall culture in the country with Kilpauk, Anna Nagar, be added to the the opening of Spencer Plaza in the early Adayar, Guindy Chennai real estate 90's,Chennai, however, has not seen the Peripheral Micro Old Mahabalipuram emergence of many new malls in the past Markets Road (OMR), GST Road between 2011 and 2013. decade. The city has been a conservative The development pattern in a city also plays Distribution of upcoming supply (2011-2013) market on the subject of retail; people in the an important role in understanding its city are more value-oriented as compared to growth. Chennai has been growing laterally the other metropolitan cities. This consumer over the years with traditional retail markets behaviour is reflected in the retail growth of like Parry's being gradually replaced by the city with the highstreet format highstreet locations of Nungambakkam and dominating over the others. T-Nagar. This reflects the demographic relocation patterns being witnessed in the As of today there city. The second and third generation are just 4 malls residents of Chennai have shifted bases operational in the towards locations like Anna Nagar, Besant Nagar and Adayar, leading to a city, which corresponding shift in retail. Central - 15% translates to North - 8% Traditional residential pockets like Mylapore South - 66% almost 2 mn.sq.ft. and Gopalapuram have also been witness to West - 15% Source: Knight Frank Research of retail space a similar demographic shift. Although existing retail developments are

Table 2. Select malls projects under construction: With the boundaries of Chennai constantly Project Name Developer Location Area (sq.ft.) Estimated Completion expanding, the upcoming mall supply is Ramee Mall Ramee Group Mount Road 200,000 Q3 2011 expected to cater to the growing residential Coromandel Mall Suryavardhan Estates OMR 250,000 Q3 2011 catchment in locations where there is Chandra Mall Chandra Builders Virugambakkam 150,000 Q3 2011 currently a limited variety of retail PS Grand Mall PS Group Velachery 300,000 Q4 2011 development. The growth in populace in the Spectrum Mall Ganga Foundations Perambur 150,000 Q4 2011 next few years is expected to drive the anticipated demand for the upcoming malls Junction Mall Marg Limited OMR 600,000 Q4 2012 in the city. Source: Knight Frank Research Out of the upcoming malls, about 13 malls are are around Rs.125/sq.ft. per month and scheduled to come up in the southern part of Rs.110/sq.ft. per month respectively. Newer the city, contributing to a significant 66% of markets like Anna Nagar and RK Salai have the total upcoming retail space supply. The average rentals at around Rs.90/sq.ft. per presence of the IT/ITES sector as well the month and Rs.95/sq.ft. per month concentration of new residential respectively. Non availability of retail space development has made south Chennai a in prime highstreets of the city have led lucrative destination for organised retail. retailers to explore the main streets of RK Salai, Nelson Manickam Road and extensions Some of the major developments entering the beyond Anna Nagar and 2nd Avenue. city's retail space include Riverside Mall at Meanwhile, average malls rentals in Mount OMR, Shriram Mall at GST Road, Galada Mall Road and RK Salai, for vanilla tenants, are at Vepery and Prestige Forum at Vadapalani. approximately Rs.115/sq.ft. per month and Another mall project, the Spectrum Mall, is Rs.140/sq.ft. per month respectively. estimated to be north Chennai's first mall- multiplex project, when completed. Given its Table 3. Highstreet rental values in April 2011 infrastructure bottlenecks, north Chennai had Micro-markets High Street Rentals for long been shunned by leading developers (Rs./sq.ft./month) from the city. This mall, expected to be ready Minimum Maximum Nungambakkam 110 140 by Q4 2011, promises to give the residents of High Road Perambur a new shopping experience. Anna Salai 95 125 Rental Values RK Salai 85 105 T Nagar 90 110 The economic slowdown in the country in Besant Nagar 70 90 2008-09 impacted the rentals prevailing in Anna Nagar 70 110 the retail sector as well. The negative impact Adyar 75 95 of the downturn was more evident on malls than on highstreets with most retailers in Purasalwakam 65 85 malls pressing for renegotiating their Source: Knight Frank Research contracts. In 2010, after a prolonged lull in the market there were increased enquiries Outlook and conversions witnessed in the Over the past year it has been observed that highstreets, thereby leading to strengthening the organised retail market has moved from of retail rentals in select micro-markets such being developer dominated to retailer as Cathedral Road, RK Salai, Adayar and dominated. The perceived slump in the retail Purasawalkam. In case of malls, since there sector led to retailers re-negotiating existing were only a few ones operational in the city, contracts. However, rentals are expected to decline in the rental values during the remain stable in the short term and viable recession has been relatively lower as rental levels coupled with increased compared to the malls in other cities. optimism displayed by retailers would be a strong catalyst to augment demand across At present, the average rentals in prime retail Chennai. markets like Nungambakkam and Anna Salai